Bond rating agency hammers NH state credit rating

A recent court decision that ruled the state Medicaid Enhancement Tax unconstitutional has triggered a debt rating agency to downgrade its outlook on New Hampshire’s general obligation and state-guaranteed bonds.

The Standard & Poor’s change in its outlook from stable to negative could mean higher borrowing costs for the state, according to Bill Dwyer, the state’s commissioner of the treasury.

“The practical effect of the change in outlook is a potentially higher cost of capital at the time of the state’s next GO (general obligation) bond issue in December; however I believe that sufficient time will lapse between now and then so that the groundwork for a positive resolution will be in place,” Dwyer said in an email Tuesday.

In its 10-page report, S&P pointed to several issues putting pressure on the state’s finances.

“The negative outlook reflects our view of the state’s thin financial position and significantly underfunded pension funding levels, which we believe lowers its flexibility to withstand the potentially large effects of the loss of Medicaid Enhancement Tax (MET) revenue,” it said.

The loss of MET revenues, if the state Supreme Court upholds the decision, would cost the state $185 million in gross tax collections this fiscal year, which ends June 30, according to the report. The general fund budget includes net MET revenues of $72.2 million this fiscal year.

The state’s rainy day fund contains about $9.3 million and “would be relatively insignificant if all or a large portion of the MET was required to be refunded for fiscal 2014 or unavailable in fiscal 2015,” S&P wrote.

In ruling the tax unconstitutional, a Hillsborough County Superior Court judge said the state taxed hospitals differently than other medical service providers.

S&P also said the state pension fund was only 56.7 percent funded, “well below that of most other states, which we believe could result in additional pressure on future budgets.”

“We were warned by our state treasurer in January that without a significant change in policy in regards to our rainy day fund, we could see our credit rating drop,” House Republican Leader Gene Chandler, R-Bartlett, said. “While this is not the sole factor in the ratings change, it does compound the problem and affects our ability to address potentially major issues like what we face with the recent Medicaid Enhancement Tax court rulings.”

The governor, in a statement, pushed for leaders in both parties to work together.

“The Standard and Poor’s announcement reinforces the need for hospitals, providers, legislators and state officials to quickly work together to address the budget and health care challenges posed by the Medicaid Enhancement Tax ruling, a direct result of short-sighted action taken in the FY 12/13 budget,” Hassan said.

The governor, the House and Senate increased money going back to hospitals for uncompensated care in the current two-year operating budget. The prior Legislature ended the uncompensated care program for the state’s largest hospitals and drastically reduced the money the smaller hospitals had been receiving.

Hassan added: “We have worked together to address issues that affect our bond rating, such as finally funding a new women’s prison and reaching a landmark settlement in the state’s mental health lawsuit. In addition, I continue to believe that using a significant portion of our surplus to strengthen the state’s Rainy Day Fund is a fiscally responsible step forward that will improve our long-term financial standing,” Hassan said.

Greg Moore, state director of Americans for Prosperity–New Hampshire, a grass-roots group promoting limited government, said “there’s no amount of spending that’s enough for their appetite, even if it means destroying the state’s bond rating.”